Have you ever maxed out your credit card? I’m not proud of it but I’ve done it. Once you do that you can’t ask for more credit if you don’t make enough to warrant the increase. You surely can’t get an increase if the credit card company says ok if you can get $100 down we will let you borrow more and keep your APR. Then you turn around and only put $50 down.
That in a nutshell is what happened this week. The S&P cut the long standing rating of the USA from AAA to AA+ It’s not like there was no warning that this would happen. The Standard & Poor’s had been looking for and requesting that America cut it’s deficit by 4 Trillion or more as a sign of good faith.
After bickering back and forth and being held at what seemed like gun point by some political parties the deficit was lowered by just 2 trillion. That is half of what was being asked. Needless to say it was not enough. An S&P spokesman said “The downgrade reflects our opinion that the fiscal consolidation plan (falls) short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”
The downgrade means really one thing. Higher rates to borrow money. Just like your APR would go up on your credit card. The borrowing costs for the U.S. government, companies and consumers will go up. Now the smart thing to do is borrow less. I know when my APR went up I avoided using my credit card like the plague.
Then again I like most Americans think logically. Politicians on the other hand think only about the next election. So that being said look for more spending, more tax cuts, no new taxes, no raising of taxes and the funding of all needless entitlement programs. Basically the complete opposite of everything a country would have to do to reduce debt.
President Barack Obama signed legislation that was designed to reduce the fiscal deficit by $2.1trillion over 10 years. That is not enough. It’s time for once to stop with all the bipartisan and just do what needs to be done. Playing nice is what has gotten America here in the first place. With slowing economic growth the USA has got to get it’s act together.
You may wonder; Is a one letter downgrade really that big of a deal? Yes! This downgrade has led to the worst week in the U.S. stock market in two years. The S&P 500 stock index fell 10.8 per cent in 10 trading days. U.S. Treasury bonds are now rated lower than bonds issued by countries like Britain, Germany and France. U.S. Treasury bonds were once thought of as the safest in the world.
China holds more than $1trillion of U.S. debt. Beijing has urged America to protect its U.S. dollar investments by addressing its budget problem many times but that for now has seem to be ignored. The securities industry trade group SIFMA said “The downgrade over time will increase funding costs for public debt by some $100billion, U.S.”
It is clear that Congress is just not adequately addressing the government fiscal deficit. This year alone we have added of $1.4trillion to it. The year is not even over yet. That is 9% of GDP (gross domestic product) which is the highest since World War II. We were at war back then. There is no excuse this time. This reckless mismanagement of Americas budget should not and can not continue.